Key idea
The return you keep is what matters, and tax takes a slice. Knowing the basics helps you understand your real, after-tax gain.
When you sell an investment for a profit, that gain is usually taxable. How much depends on the asset and how long you held it. This is capital-gains tax, and it decides the difference between your gross return and what you actually keep.
Equity and equity funds, in brief
| Holding period | Called | Tax (equity) |
|---|---|---|
| 12 months or less | Short-term (STCG) | 20% |
| More than 12 months | Long-term (LTCG) | 12.5% above ₹1.25 lakh/year |
For listed shares and equity mutual funds, gains within a year are short-term and taxed at 20%; gains after a year are long-term, taxed at 12.5% on the amount above a ₹1.25 lakh annual exemption. Debt mutual funds bought after April 2023 are generally taxed at your slab rate instead. Tax figures for FY 2026-27. The Budget can change them, so confirm the current year.
The takeaway for behaviour
Tax quietly rewards patience: holding equity beyond a year drops the rate and unlocks the annual exemption. It is one more reason long-term investing tends to beat frequent trading, though tax should inform, not dictate, your decisions.
This explains the mechanics. How tax applies to your specific situation is worth confirming for your own case.
Finished reading?
Marking this complete counts today, and your streak becomes day 1.